Colombia’s Supreme Administrative Court issued a pivotal decision on 22 May 2025 in which it interpreted the scope and application of the obligation to act as a VAT withholding agent when contracting services from foreign service providers. The court overruled the position of the National Tax Authority (DIAN), which required large taxpayers to act as VAT withholding agents in transactions with nonresident service providers (generally B2B transactions). The court’s reasoning in its decision provides welcome clarifications.
Article 437-2 of the Colombian tax code delineates the categories of individuals or entities required to withhold VAT and their responsibilities. Relevant to the case before the Supreme Court are two rules:
The Supreme Administrative Court ruled that DIAN’s interpretation of VAT obligations does not adequately respect the legal hierarchy and specificity principles. Referencing article 5 of Law 57 of 1887, which provides that “a specific provision prevails over a general one,” the court made it clear that rule 3 of article 437-2 functions as a lex specialis. Thus, when no Colombian contracting party is liable for VAT, it is unequivocally the responsibility of the foreign service provider to declare and remit VAT.
The court also emphasised that the foreign service provider is responsible for collecting VAT, filing its own return and paying the VAT due where the service recipient is not a VAT payer, as stipulated in article 437.
The Supreme Court’s decision represents a significant clarification for foreign service providers rendering taxable services to persons in Colombia by confirming that the obligation to withhold VAT does not automatically extend to all large taxpayers and in the absence of a VAT-able Colombian counterparty, the foreign provider bears the responsibility to declare and pay VAT directly to the Colombian government. This interpretation aligns with statutory principles and provides legal certainty and operational clarity for international service providers. It encourages the provision of cross-border services by ensuring that tax obligations are applied in a manner consistent with the structure and intent of Colombian tax law.
Martha Reyes Amaya
BDO in Colombia
Legal Framework
Article 437-2 of the Colombian tax code delineates the categories of individuals or entities required to withhold VAT and their responsibilities. Relevant to the case before the Supreme Court are two rules:
- Rule 2: Large taxpayers designated by DIAN, regardless of whether they are VAT payers, as well as any taxpayer specifically appointed by DIAN through administrative resolution, must act as VAT withholding agents; and
- Rule 3: Colombian VATable companies/individuals who engage foreign service providers for the performance of taxable services within Colombia must act as VAT withholding agents.
- If VAT is withheld (i.e., via the reverse charge) in Colombia by the contracting party, the foreign service provider is not required to register with DIAN or file bimonthly VAT returns.
- If VAT is not withheld, the foreign service provider must comply with Colombian VAT obligations, including registration with DIAN and the submission of periodic VAT declarations.
Decision of the Supreme Court
The Supreme Administrative Court ruled that DIAN’s interpretation of VAT obligations does not adequately respect the legal hierarchy and specificity principles. Referencing article 5 of Law 57 of 1887, which provides that “a specific provision prevails over a general one,” the court made it clear that rule 3 of article 437-2 functions as a lex specialis. Thus, when no Colombian contracting party is liable for VAT, it is unequivocally the responsibility of the foreign service provider to declare and remit VAT.The court also emphasised that the foreign service provider is responsible for collecting VAT, filing its own return and paying the VAT due where the service recipient is not a VAT payer, as stipulated in article 437.
BDO Insight
The Supreme Court’s decision represents a significant clarification for foreign service providers rendering taxable services to persons in Colombia by confirming that the obligation to withhold VAT does not automatically extend to all large taxpayers and in the absence of a VAT-able Colombian counterparty, the foreign provider bears the responsibility to declare and pay VAT directly to the Colombian government. This interpretation aligns with statutory principles and provides legal certainty and operational clarity for international service providers. It encourages the provision of cross-border services by ensuring that tax obligations are applied in a manner consistent with the structure and intent of Colombian tax law.Martha Reyes Amaya
BDO in Colombia